A more hawkish chorus of Federal Reserve officials showed up at the last FOMC meeting, but traders are paying more attention to recent weak economic reports than to the history in the meeting's minutes.
As a result, stocks soared, following through on a rally that began even before the unexpected 9 a.m. ET release of the March meeting minutes. The Fed released the minutes five hours early because they were inadvertently sent to Congress and trade lobbyists Tuesday afternoon at 2 p.m. The Fed has asked for an investigation into whether there was trading on that release.
A surprise in the minutes was the heightened amount of debate around the Fed's quantitative easing program, but stocks shrugged that off, focusing instead on the Fed's commitment to battle a weak economy and soft labor market.
The Fed said a "few" members saw risks outweighing benefits though most saw the benefits outweighing risks. It also said a "number" saw tapering of the Fed's purchase of $85 billion in Treasury and mortgage assets at midyear, and several saw a halt to the QE program by year end.
(Read More: Some Fed Members Fear Monetary Policy Effects)
"Any forecast of tapering is still a forecast. This was all before the payroll number. It's a euphoric market that is heading higher," said one trader. The S&P 500 soared in morning trading and was well above its all-time intraday high of 1576 at midday. The Dow Jones Industrial Average saw triple-digit gains and was trading at a new all-time high.
Traders have been paying close attention to the mixed messages form Fed officials in recent week, including San Francisco Fed President John Williams who was the first to articulate that the Fed could slow down easing at mid-year, earlier than expected by the market. But his comments, and those of other Fed officials were outweighed by the dovish comments of Fed Chairman Ben Bernanke and Vice Chair Janet Yellen.
And Friday's stunningly weak 88,000 nonfarm payrolls report for March seemed to end all discussion of an early end to easing, since jobs are a key metric the Fed is monitoring.
(Read More: End to Fed Bond Buying 'Premature': Lockhart)
As stocks rallied Wednesday, Treasury yields moved higher, and some traders said the market focused on the comments that suggested a pullback for QE in the meeting minutes. "…The Treasury market is off just 3-4 bp (basis points) on the news that a 'number' of participants looked for the pace of QE to 'be tapered down around midyear.' That information was not fully in the market and was understandably bearish for Treasurys," wrote Ian Lyngen, senior Treasury strategist at CRT Capital.
The 10-year note was yielding 1.78 percent, at midday, as traders awaited a 1 p.m. auction of $21 billion reopened 10-year notes.
Zane Brown, fixed income strategist at Lord Abbett, said the Fed made a very important comment in the minutes about being able to also increase easing if needed, suggesting that it could reverse course if it began to pull back and the economy weakened.
"I think they did suggest they could adjust their quantitative easing both ways and that's extremely important because they want to manage market expectations," said Brown.
But he does not see the Fed moving away from easing soon.
"Certainly, the information that we've seen since the Fed meeting, especially in the way of the jobs report, argues against them being able to do that any time soon. That's been reinforced with weak durable goods orders … ISM also was down, both nonmanufacturing and manufacturing and consumer confidence was down markedly in March, below 60 from 68," he said. "That's a dramatic reversal of the nearly euphoric environment we might have had a couple weeks ago, when it looked like the first quarter was going to overcome all the fears … and we have yet seen any impact from sequestration."
Brown said the Fed being able to increase and lower QE is important, since it would be damaging to the economy should interest rates move too high ahead of it ending the program. QE is intended to help keep rates low while pushing investors in to riskier assets, like stocks.
"Once you get the 10-year Treasury above 2.25 (percent) you jeopardize housing, you jeopardize refinancings. It pushes refinancings above 4 percent, maybe 4.25," he said.
Diane Swonk, chief economist at Mesirow Financial, said she saw a more contentious Fed in the March meeting minutes. Yet, the market is shrugging it off because of the context of weak data, reported in the week after the March 20 meeting.
"It's not as bad as the employment report being leaked out. This could have been a market mover in a different context. We had a ton of Fed chatter before this happened," said Swonk, who also noted that the minutes are important in that they point out dissension is possible.
"During the height of the crisis, we had dissenters on both side of the equation. The other thing is markets have gotten used to dissent within the Fed," she said. "If they were all following it (Fed policy) blindly like a cult, you would worry. But they are not."